Media platform competition in the market with advertisement blockers: The value of native advertising strategy

Ad blocking presents a significant challenge to the advertising revenue of media platforms. To address this issue, platforms are increasingly embracing native advertising, a format designed to integrate a platform’s media content seamlessly, significantly different from traditional advertising. In this study, we develop a game-theoretic model to explore the value of native advertising as a solution to the ad-blocking issue faced by two competing platforms in the market with both ad-block and non-ad-block consumers. The results show that competing platforms choose to ban ad blockers in a world without native advertising; however, in the presence of native advertising, the platforms may adopt a native advertising strategy or even allow the use of ad blockers. We find that market competition is critical for platforms to determine optimal advertising strategies. Despite the cost disadvantages and potential deceptiveness associated with native advertising, this format is still a strategic tool for platforms to soften competition in a highly competitive market. Moreover, the native advertising strategy can achieve a win-win-win outcome for the two platforms, ad-block and non-ad-block consumers. Nonetheless, the advantages of native advertising may lead to a Prisoner’s Dilemma outcome in a competitive context, wherein competing platforms earn lower profits from native advertising and yet pursue it. Finally, we examine the robustness of the main insights under various model extensions.